Investors sit in front of an electronic stock board before market opening at a securities brokerage in Shanghai, China (Photographer: Qilai Shen/Bloomberg)

Emerging-Market Investors Seek Solace in China After Tense Week

(Bloomberg) -- After being gripped by tensions in the Middle East and U.S. sanctions against Russia, emerging-market investors will shift their focus to China for clues on whether developing markets can regain their vigor.

Gross domestic product data in the world’s biggest emerging market is scheduled for release on Tuesday in Beijing, Brazil’s mid-April inflation data is due Friday and Poland will publish a string of economic indicators this week.

Investors need to “get used to the volatility, but trust that emerging-market assets will get support from strong global economic fundamentals through 2018,” said Per Hammarlund, the chief emerging-markets strategist at SEB in Stockholm. “Trade policy uncertainty and market jitters will be a feature at least through August, before mid-term election campaigns take over the attention in Washington.”

What you Need to Know About Emerging Markets This Week: Audio

Emerging-market currencies dropped for a second week, led by Russia’s ruble, which had its biggest weekly loss in almost three years. A JPMorgan Chase & Co. gauge of expected swings in developing-nation currencies slipped in the latter part of last week, after touching the highest since Feb. 22.

Developing-nation stocks advanced, ending a three-week decline, on speculation that global synchronized growth will bolster corporate earnings.

Economic Data

While economists predict China’s economy expanded 6.8 percent in the first quarter from a year earlier, there’s potential for surprise after People’s Bank of China Governor Yi Gang said economic indicators have performed better than expected. The government will also release retail sales, industrial production and fixed-asset investment data.

Traders will watch for Brazil’s mid-April inflation data due on Friday as the central bank approaches the end of an easing cycle that took interest rates to a record low. While inflation may have accelerated from the previous month due to a larger increase in government-regulated prices, the headline CPI figure is running at 2.68 percent, below the 4.5 percent target, and economists are split on whether authorities will cut rates again in May. Swap rates are skewed toward a 25 basis-point rate cut to 6.50 percent.

Investors will get an update on Colombia’s economy with the release Monday of February retail sales and industrial production data. Softer figures will support the case for the central bank to keep cutting rates this year. The Colombian peso’s rally this year makes it the best-performing currency in the world.

Markets will also receive Polish macro data for March, including wages, employment, industrial production and PPI, with investors looking if they confirm growth continues to be solid amid subdued price pressures. Finance Minister Teresa Czerwinska says the nation is waiting for a rating upgrade after S&P Global Ratings raised its outlook to positive from stable.

Malaysia and South Africa will publish inflation data on Wednesday.

Politics Matters

Investors of Russian assets will need to weigh the impact of a U.S.-led strike in Syria over the weekend. The nation’s benchmark gauge for stocks posted its worst week in a year and the ruble fell the most in the world as sanctions and the threat of a showdown between the U.S. and Russia in Syria spurred a selloff. Russia’s State Duma is due on Monday to discuss a bill on a broad range of potential retaliatory moves against new U.S. sanctions.

While Russia, Iran and Lebanon’s Hezbollah group rallied around Syrian President Bashar Al-Assad’s regime and condemned the attack in Syria, they didn’t threaten any retaliation.

Meanwhile in Brazil, the real and stocks have underperformed peers since ex-President Luiz Inacio Lula da Silva was arrested, leaving the race wide open. An electoral poll Tuesday may provide a glimpse of the increasingly fragmented electoral field, six months before Brazilians cast votes. Lula was been the front-runner in every poll before his arrest and he can still influence the election by supporting another candidate.

Elections are also on the boil in Mexico this week as presidential candidates stage the first of three debates on Sunday. Markets will watch for concrete proposals from front-runner Andres Manuel Lopez Obrador, who has been viewed with concern by investors worried he’ll restrict foreign investment in oil and gas. It’s not just the candidate: UBS Group AG says there’s also a risk that his left-wing party will gain seats in Congress, weakening any political opposition. Still, UBS says assets would rebound from any initial selloff.

Trade Jitters

Fears of a trade war between the U.S. and China will loom large this week as finance ministers and central bankers from International Monetary Fund member countries meet in Washington.

Even though concerns eased after President Donald Trump expressed optimism on striking a deal with China, his administration stepped up criticism of China’s lack of progress in rectifying its trade imbalance with the U.S. Still, the Treasury refrained from naming the Asian nation a currency manipulator in its semi-annual foreign-exchange policy report released Friday.

The U.S. Treasury added India to its monitoring list and said it’s considering expanding the number of nations covered by the report, which currently includes America’s 12-largest trading partners and Switzerland. Countries including China, Japan, South Korea and Germany stayed on the list.

While some discount the possibility of a trade war, the threats led UBS to cut its forecast for the Brazilian real.

Rates Decisions

Indonesia’s central bank will probably maintain its benchmark rate at 4.25 percent on Thursday, according to economists surveyed by Bloomberg. Policy makers in Kazakhstan and Israel are also seen keeping their main interest rates unchanged this week.

©2018 Bloomberg L.P.